The Finance Bill 2024 has reversed the very freedoms it introduced in the 2022 Finance Bill.
The Finance Bill 2022 removed the BIK on employer contributions into a PRSA for employees.
This meant that a director could make a contribution up to the €2.15M revenue limit in any one financial year irrespective of salary level or years of service.
The legislation also allowed the corporation tax relief to be granted on any large payments in the same financial year unlike company pension schemes where the corporation tax relief on larger contributions over the limit have to be spread forward. This can up to a maximum of 5 years.
This made things very clear and clean for directors especially those taking lower salaries to boost pension contributions.
However, the Finance Bill 2024 made a surprise announcement in October 2024 by introducing a limit.
With effect from 1st January 2025 employer contributions to employees PRSA’s will be capped at the total salary, bonus & emoluments of that same employee or director for that financial year.
In other words, if the total package of an employee is €42K per year then the maximum employer contribution allowed for that year is €42K. Any excess employer contribution above is treated as a BIK.
Standard Fund Threshold (SFT)
Finance Bill 2024 also confirmed that the Standard Fund Threshold (SFT) will increase from €2 million to €2.8 million by 2029.
You can still fund a PRSAs under the current unrestricted funding model before the changes come into effect so set up a call if you want to discuss in more detail or to explore employer contribution options before the restrictions come into effect.
Kevin